PCG EMAIL SERVICES: LUBBOCKONLINE.COM - Howell: Surge in prospective plantings spooks some cotton bulls

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LUBBOCKONLINE.COM - Howell: Surge in prospective plantings spooks some cotton bulls


April 7, 2017
By Duane Howell

A surge in U.S. prospective plantings and the approach of first notice day for May deliveries spooked some bulls as cotton futures fell to a 10-week low during the latest marketing week.

Spot May lost 172 points for the week ended Thursday to close at 74.51 cents, its lowest finish since Jan. 25 and down 495 points from its contract high on March 6. May posted the week's high at 78.07 on Monday and the low at 74.48 cents on Thursday.

The May-July spread traded to a new high carry of 194 points and closed on a new high May discount of 189 points. May's open interest coming into Thursday had fallen 31,674 lots from a week ago to 109,308.

May options expire on Thursday, and there will be five trading days after that until first notice day on April 24. The market will be closed April 14 for Good Friday.

July shed 120 points to settle at 76.40 cents, while December dipped 42 points to finish at 73.27 cents. The inverted July-December straddle narrowed 78 points to a 313-point July settlement premium.

U.S. all-cotton prospective plantings jumped to 12.233 million acres, up 21.4 percent from last year, USDA reported. Intentions rose by 21.5 percent to 12.001 million acres of upland and 19.3 percent to 232,000 acres of Pima or extra-long staple cotton.

If realized, cotton plantings would be the largest since 2012 when growers seeded 12.31 million acres and would extend a rebound from the smallest cotton plantings two years ago, 8.58 million acres, since 1983.

Producers in Texas, the largest cotton state, intend to boost plantings 22.1 percent to 6.9 million acres.

The prospective upland plantings reports during the past 20 years have been below the final tally 12 times and above eight times. Changes between the intentions and final plantings have averaged 617,000 acres and have ranged from only 6,000 acres to 2.115 million acres.

Talk of oversupply ahead circulated with only 4 percent of the U.S. crop planted as of last Sunday. The plantings, reported by USDA, were up from 3 percent a year ago and even with the five-year average.

Growers had planted 7 percent in Texas, up from 5 percent a year ago and even with the five-year average. Producers in Arizona had planted 21 percent, behind 24 percent last year and the average. These were the only states reporting cotton in the ground.

Topsoil moisture on the Texas High Plains improved to 70 percent adequate to surplus in the northern district, but was 70 percent short to very short in the southern area. Subsoil moisture was 63 percent adequate in the north and 56 percent short to very short in the south.

The market continued to slip amid selling attributed mainly to spec-fund long liquidation even as U.S. weekly all-cotton export sales for this season and next remained strong at 414,400 running bales.

Sales of 284,600 RB for this season boosted commitments to 13.138 million, almost 103 percent of the USDA forecast. At the corresponding point last season, commitments were 88 percent of final 2015-16 exports.

Shipments quickened to a whopping 463,400 RB, bringing the total for the season to 8.729 million RB, 68 percent of the USDA estimate and up 3.644 million RB or 72 percent from a year ago.

The report strengthened expectations that USDA likely will boost its export estimate in its April supply-demand report, set for release on Tuesday. This could lower the ending stocks estimate, now at 27.3 percent of market offtake. Stocks last year were 30.2 percent of use.

Export sales for next season of 121,000 RB raised 2017-18 bookings to 1.841 million RB, compared with forward sales a year ago of 1.111 million.

On the demand outlook, world mill use is projected to outpace production by 5.97 million bales in 2017-18, according to the International Cotton Advisory Committee. This follows its estimate of a global crop shortfall of 6.06 million bales this season.

A conversion of the estimates from metric tons to 480-pound statistical bales pegged world production up 1 percent to 106.19 million as 2016-17 prices encourage farmers to plant cotton. However, ICAC expects the average yield to decline about 2 percent.

The ICAC report, just days after USDA's prospective plantings data, projected U.S. 2017-18 production at 17.45 million bales, compared with USDA's 2016-17 estimate of 17.23 million bales.

Yields are expected to decline from this season's high level to closer to the five-year average, ICAC indicated, and abandonment to rise from the below-average loss of 2016.

The USDA will issue its first official 2017-18 world supply-demand forecasts in May along with its final estimates of U.S. 2016-17 production, acreage and yield.

World consumption may recover by 1 percent to 112.16 million bales as cotton prices decrease, ICAC indicated, noting also that "growth in the global economy is expected to be much stronger in 2017 and 2018."

The ICAC expects 2017-18 world ending stocks to decline 7 percent to 76.01 million bales, 67.8 percent of consumption, down from its estimate for 2016-17 of 74.1 percent. The USDA last month estimated 2016-17 world stocks at 80.5 percent of mill use.

Meanwhile, mills priced 8,729 on-call lots in May during the week ended March 31 and producers priced 395 lots, the Commodity Futures Trading Commission's weekly call report showed.

The unfixed positions fell to 19,046 lots for mills and to 1,852 lots for producers. The net call difference declined 8,334 lots to 17,194, 12.8 percent of May's open interest. The unpriced ratio was 10.3:1.

Earlier, non-commercials reduced their net longs in futures only by 1.8 percentage points to 41.7 percent of the open interest during the week ended March 28, separate CFTC data showed. They sold 3,913 lots, adding 2,397 shorts and liquidating 1,516 longs to cut their net longs to a still hefty 116,880 lots.

In futures-options combined, funds and non-reportable traders reduced their net longs 2,696 lots to 182,378. Commercials took the other side.

Duane Howell is retired farm editor of The Avalanche-Journal. He writes daily cotton market reports for DTN/Progressive Farmer. His e-mail address is duane.howell at sbcglobal.net.

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